Published in Manufacturing
Mister-E-Liquid LLC CEO Ron Pease says flavored nicotine products account for 89 percent of sales for the company. Gov. Gretchen Whitmer’s statewide ban on flavored vaping products “has almost locked this industry in the state of Michigan into a death spiral,” Pease said.   Mister-E-Liquid LLC CEO Ron Pease says flavored nicotine products account for 89 percent of sales for the company. Gov. Gretchen Whitmer’s statewide ban on flavored vaping products “has almost locked this industry in the state of Michigan into a death spiral,” Pease said. PHOTO: KATY BATDORFF

UP IN SMOKE? Local vape manufacturers unlikely to survive flavor ban

BY Sunday, September 29, 2019 07:29pm

 GRAND RAPIDS — Before Ron Pease became the CEO of Mister-E-Liquid LLC, a Grand Rapids-based manufacturer of e-liquid used in electronic cigarettes, he smoked a pack a day for 15 years. 

Pease weaned himself off of traditional cigarettes by using e-cigarettes, which are designed to convert liquid containing nicotine into a mist or vapor that is inhaled. The liquid he used was flavored to taste like the familiar tobacco he had been smoking. 

The process worked: After a few weeks, Pease quit traditional cigarettes entirely and started to notice his senses of smell and taste becoming more acute — a common occurrence when smokers kick the habit. 

“I could taste things again and the taste of tobacco flavors were horrific at best,” he said of his initial vape choice. “Then after a few weeks, when all of a sudden I really couldn’t stomach it, I switched to a flavor we have still today called GTFO.” 

GTFO, one of more than 1,000 e-liquid recipes trademarked by Mister-E, is flavored to taste like chocolate, caramel and raspberry. Soon, it and nearly all of the company’s catalog of products will be illegal in Michigan.

That’s because Gov. Gretchen Whitmer announced earlier this month that she was using her executive authority to make Michigan the first state in the nation to ban the sale of flavored nicotine products such as e-cigarettes and e-liquid, also known as vape juice or e-juice. 

As this report went to press, the Michigan ban was set to be effective for 180 days and can be extended for six months while the state Legislature works out a more permanent solution. Manufacturers and retailers have until Oct. 2 to comply.

The ban has led to a bleak outlook for vape manufacturers such as Mister-E, which employs 80 people in Grand Rapids and generates between $5 million to $10 million in sales. According to Pease, flavored e-liquids account for 89 percent of sales for the company, whose top sellers include a strawberry and pineapple recipe called “Jade Tiger” and the tropical fruit combination “Blue Voodoo.”

“Find me an example of one company on earth that was able to lose 89 percent of their gross sales and survive for six months,” Pease said. “I would say (Whitmer) has almost locked this industry in the state of Michigan into a death spiral.”

Health matters

A series of lawsuits to block the ban from taking effect were filed as this report went to press. At the same time, lawmakers also proposed legislation to ease provisions in the state ban. Regardless of how those measures play out, the vaping industry increasingly finds itself at the center of a nationwide backlash that could threaten the sector’s survival. 

In addition to Michigan, a growing list of lawmakers at the city and state level across the country are in the process of clamping down on the vaping industry, especially regarding flavored liquid nicotine products, which health officials say are intended to attract children. Even the Trump administration has signaled its support for a federal ban on at least some vaping products. 

The measures are in response to concerns that e-cigarettes flavored to taste like candy and fruit are leading to a spike in the number of young people forming nicotine addictions and threatening to erase years of progress curtailing youth tobacco use.

“Right now, companies are getting our kids hooked on nicotine by marketing flavors like apple juice, bubble gum, and candy,” Gov. Whitmer said in a statement. “Banning these flavors is a bold step that will keep our kids healthy and safe from the harmful effects of vaping.” 

The Centers for Disease Control and Prevention found that e-cigarette use among high school students increased to more than 27 percent in 2019, up from nearly 21 percent in 2018 and 12 percent in 2017.

“Gov. Whitmer is right when she declares Michigan children’s use of e-cigarettes as a public health crisis, with lifelong and devastating consequences,” Mohammed Arsiwala, president of Michigan State Medical Society, said in a statement to MiBiz. “Vaping is dangerous. The Governor’s bold move to ban the sale of flavored vaping products — that clearly and shamefully target our kids — will prevent nicotine addiction before it starts, and make a real difference in children’s lives.”

Prior to the latest ban on flavored e-cigarettes, Michigan had already prohibited the sale of nicotine-based e-liquid to minors, regardless of flavor.

Cleanroom process

At its most basic level, e-liquid is a mixture of water, propylene glycol (PG) or vegetable glycerin (VG), flavoring and nicotine. On its production line, Grand Rapids E Liquid manufactures vape juice in multiple nicotine and flavor levels using various lab-made PG and VG ratios, depending on consumer preference. 

“More VG gives you a bigger cloud and, of course, more nicotine means you’re a heavier smoker,” Vaughn Jurgens, CEO of Grand Rapids E Liquid, told MiBiz. 

In an ISO-certified cleanroom, a lab facility designed to keep extremely low levels of particulates like dust and airborne organisms, the liquid is either steeped in 3.5-gallon containers or “shot” with flavor before being bottled and labeled. 

“You can do flavor boosts for people, you can take flavors out for people,” Jurgens said.

The company also manufactures “step-down” nicotine levels in liquids for smokers who are using an e-cigarette to help to kick the habit altogether. 

Recently, Grand Rapids E Liquid expanded into a larger cleanroom and invested $20,000 into 21 HEPA filters, according to Jurgens. 

“It’s a big financial loss for me,” he said of the timing of the ban, noting it will likely force his company to “go bankrupt” if he’s unable to sell his most popular products. “I’m expanding for no reason because I’m not going to have the volume of business. I’m going to have to get rid of all my employees.”

Fighting stereotypes

In 2018, the statewide economic contribution made by the vapor industry — which includes e-liquids and other vape products — was more than $200 million, according to data from the Vapor Technology Association. In Michigan, more than 2,000 people work in the industry with direct wages of more than $75 million. 

As well, Defend MI Rights, a coalition of e-liquid manufacturers and civil liberties and small business advocates, has joined together to oppose the state ban, calling it a violation of the rights of Michigan adults to decide what they buy and consume.

“Honestly, it’s government overreach,” Jurgens said. “We are going to file a preliminary injunction coming up here pretty soon and we’re going to go at them because there’s too much at risk for us to lose everything.”

Pease at Mister-E echoed those sentiments. 

“It’s absolutely astounding to me that there are lawmakers putting laws in place and saying these products aren’t regulated, which is absolutely incorrect,” Pease said. “They’re claiming complete ignorance to knowledge of what the FDA is doing. It is my opinion that if a government agency is going to rule something out of existence for any amount of time or have an emergency rule, they’d better do their research and they better understand what it is that they are ruling out.”

According to emergency rules released Sept. 18 by the state, manufacturers, retailers and resellers in Michigan, including online sellers, are no longer allowed to stock vaping products that are flavored to taste like anything other than tobacco. Anyone possessing four or more flavored vape products will be “presumed to possess said items with the intent to sell,” a misdemeanor offense that is punishable by a fine and six months of imprisonment per item.

The possession law makes it impossible for manufacturers like Mister-E, which sells to hundreds of shops around the country and internationally, to produce flavored products for other markets from its facilities in Michigan. 

“At any given time, we might have a quarter million bottles (of e-liquid) in our facility,” Pease said. “If we dial that back to 100,000 — for argument’s sake — I’m the owner and I could be subject to 50,000 years in jail for manufacturing and selling a product that would absolutely comply with Michigan law otherwise, because it’s not intended for distribution in the state of Michigan at all.”

Pushing back

As the industry stares down a wave of possible government regulations, some vaping-related firms have decided to fight back. 

On Wednesday, Houghton-based retailer 906 Vapor LLC and its owner Mark Slis filed lawsuits against the Michigan Department of Health and Human Services. The legal actions are seeking multiple forms of judicial relief for the industry, including preliminary injunctions, temporary restraining orders or outright overturning of the bans. 

The measures are only the beginning of what is shaping up to be a wave of pushback from the vape industry, according to Pease of Mister-E-Liquid. 

“If you’re wanting to know if there’s more lawsuits coming, I would say, off the cuff, there’s a 99 percent chance of yes,” Pease said. 

Regardless of whether lawsuits, lobbying or legislative action from industry advocates are successful, the momentum of national conversation continues to put pressure on vape producers. 

“Everything that you’re seeing right now is this broad stroke, fear-mongering, reactionary type of a situation. Hopefully we can get our head around this as a nation, and constituents can get their head around it and not allow the government to ban these things,” Pease said. “Hopefully we can do it before the whole entire industry is destroyed.”

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